Thursday, June 29, 2017

Three Cheers For Financial Literacy

Since 2000, the Programme for International Student Assessment (PISA) coordinated by the Organization for Economic Cooperation and Development (OEDC) has assessed the reading, math, and science knowledge of 15-year-olds around the world every three years. More recently, since 2012, the program has also measured teen’s financial literacy. The latest findings just released by the OECDs provided small - but consequential - reasons for celebration.

The full report on the latest PISA financial literacy assessment is extensive, showing a disappointingly high proportion of teenagers who struggle to understand money matters, indicating where various countries rank on the list, and highlighting financial literacy disparities both across and within countries.

Yet it is also crucial to acknowledge that headway is being made, despite those continuing concerns.

First, important issues need champions, and the financial literacy campaign has picked up its share of celebrities! For instance, Her Majesty Queen Máxima of the Netherlands spoke at the May 24 PISA launch. The Queen has been and continues to be an impressive ambassador for financial knowledge. She was introduced by the OECD Secretary General, Angel Gurría, who also spoke eloquently about the importance of financial literacy for the young. France’s Central Bank Governor, François Villeroy de Galhau, discussed activities to boost financial literacy in his country, including plans for a new museum to teach about money, personal finance, and economics. These high-profile advocates contributed to a Paris gathering that was, quite simply, spectacular.

A second high point was that Germany’s G20 presidency has brought financial literacy into the global agenda. The Vice President of the Bundesbank, Claudia Buch, offered an illuminating explanation as to why financial literacy is important for individuals, society, and central banks. A major takeaway from her presentation is that financial education matters, and public policy can improve financial decision-making. Moreover, the effects of higher financial literacy can be particularly beneficial for the young.

PISA is a visionary project that recognizes financial literacy as an essential skill for navigating today’s society, not just in advanced economies, but globally. Countries participating in the assessment allow us to measure and compare financial literacy. This leads me to another piece of good news: new countries participated in the 2015 assessment and we can assess financial literacy in a sizeable group of economies.

Portugal’s Minister of Education, Tiago Brandão Rodrigues, stole the spotlight in Paris, not just for the enthusiasm and charisma he showed during his presentation, but also for his Ministry’s ambitious work to advance financial literacy. He formally announced that Portugal will join the PISA assessment in 2018.

Using the new data, we have been able to assess the state of financial knowledge among the young on five continents. For countries which participated in both the 2012 and 2015 rounds, we can also measure changes over time; this too has produced some positive news. For instance, we have learned that it is possible to improve financial literacy, even in as short a time span as three years. Two countries have done this: Italy and the Russian Federation. I am eager to study these results in greater depth, particularly since Italy is my native country.

Another hopeful sign came from the developing world, especially the BRICS (Brazil, Russia, India, China, and South Africa). The Securities and Exchange Commission of Brazil (CVM)’s chairman, Leonardo P. Gomes Pereira, gave a truly impressive talk. Brazil may be last in PISA’s 15-country ranking, but it is pushing toward the forefront when it comes to the pro-financial literacy work it is implementing and planning.

It was my privilege to participate in the design of the PISA’s financial literacy assessment, and collaborate with the OECD to host the Global Policy Research Symposium to Advance Financial Literacy following the PISA data release. As one whose academic life has been dedicated to economics and financial literacy, I am encouraged by the bright moments at the OECD gathering and the focused efforts underway in many countries.

In Paris, we toasted to financial literacy, and we also raised our glasses to Brazil. Progress can be achieved; it is within reach! Rankings are useful because they can change, and changes should be anticipated when we meet again in three years. Most importantly, we toasted to the young: we must never forget that they are our future.

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About Me

Annamaria Lusardi is the Denit Trust Endowed Chair of Economics and Accountancy at the George Washington School of Business. Previously, she was the Joel Z. and Susan Hyatt Professor of Economics at Dartmouth College. She has taught at Dartmouth College, Princeton University, the University of Chicago Public Policy School, the University of Chicago Booth School of Business and the Graduate School of Business at Columbia University. From January to June 2008, she was a visiting scholar at Harvard Business School. She has advised the U.S. Treasury, the U.S. Social Security Administration, the Dutch Central Bank, and the Dartmouth Hitchcock Medical Center on issues related to financial literacy and saving. She is the recipient of the Fidelity Pyramid Prize, awarded to authors of published applied research that best helps address the goal of improving lifelong financial well-being for Americans. She holds a Ph.D. degree in Economics from Princeton University.